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Full text of "Costs of producing fed cattle in the United States"

\y 



96th Congress 1 
1st Session J 



COMMITTEE PRINT 



COSTS OF PRODUCING FED CATTLE IN 

THE UNITED STATES— FINAL 1977, 

PRELIMINARY 1978, AND 

PROJECTIONS 

FOR 1979 



PREPARED BY THE 

ECONOMICS, STATISTICS, 

AND COOPERATIVES SERVICE 

U.S. DEPARTMENT OF AGRICULTURE 

FOR THE 

COMMITTEE ON AGRICULTURE 

NUTRITION, AND FORESTRY 

UNITED STATES SENATE 





AUGUST 10, 1979 



Printed for the use of the 
Committee on Agriculture, Nutrition, and Forestry 



48-121 



U.S. GOVERNMENT PRINTING OFFICE 
WASHINGTON : 1979 



COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY 



HERMAN E. TALMADGE, Georgia, Chairman 



GEORGE Mc GOVERN, South Dakota 
WALTER D. HUDDLESTON, Kentucky 
EICHARD B. STONE, Florida 
PATRICK J. LEAHY, Vermont 
EDWARD ZORINSKY, Nebraska 
JOHN MELCHER, Montana 
DONALD W. STEWART, Alabama 
DAVID H. PRYOR, Arkansas 
DAVID L. BOREN, Oklahoma 

Henry J. Casso, Staff Director 

Carl P. Rose, General Counsel 

George S. Dunlop, Minority Staff Director 



JESSE HELMS, North Carolina 
MILTON R. YOUNG, North Dakota 
BOB DOLE, Kansas 
S. I. HAYAKAWA, California 
RICHARD G. LUGAR, Indiana 
THAD COCHRAN, Mississippi 
RUDY BOSCHWITZ, Minnesota 
ROGER W. JEPSEN, Iowa 



FOREWORD 



Congress, in 1973, directed the Department of Agriculture to con- 
duct cost of production studies for various agricultural commodities 
to enable Congress and the administration to make more appropriate 
policy decisions in the food and agriculture area. 

Since that time the Department of Agriculture has undertaken 
numerous studies and continuously expanded the focus of the mandate 
in the Agriculture and Consumer Protection Act of 1973. 

This report, ' 'Costs of Producing Fed Cattle in the United States — 
Final 1977, Preliminary 1978, and Projections for 1979," is an example 
of the broader focus that the Department of Agriculture is taking. 
The report is especially pertinent because the structure of the beef 
industry and beef prices are major issues at this time. Major cost 
and price variations over the last few years have severely affected the 
fed cattle industry. From 1974 until recently returns have been below 
the cost of production which encouraged industry contraction and thus 
lower supplies. This in turn resulted in rising consumer prices. 

The outlook at this time is for improved returns on investments to 
fed cattle producers. In general this is welcome news, but it must be 
remembered that part of the reason for the improved income situation 
for fed cattle producers at this time is the economic distress that these 
same producers have endured for several years. 

This is the second of two studies being printed this year with regard 
to beef cattle. The committee recently published another report 
discussing the cost of producing feeder cattle — the first step in the beef 
production cycle. These studies should provide valuable information 
to everyone who is concerned about what is happening in the beef 
industry. 

Herman E, Talmadge, 

Chairman. 
(in) 



Digitized by the Internet Archive 
in 2013 



http://archive.org/details/producing961unit 



LETTER OF TRANSMITTAL 



Department of Agriculture, 

Office of the Secretary, 
Washington, D.C., June 22, 1979. 
Hon. Herman E. Talmadge; 

Chairman, Committee on Agriculture, Nutrition, and Forestry, 
U.S. Senate, 
Washington, B.C. 

Dear Mr. Chairman: The Agriculture and Consumer Protection 
Act of 1973 directed the Secretary of Agriculture to conduct cost of 
production studies for certain commodities. The Economics, Statistics, 
and Cooperatives Service was delegated the responsibility to carry 
out these studies. 

Recognizing the complexity of making cost estimates and the great 
need of policymakers, producers, and the general public to understand 
as much as possible about cost of production, we have designed a 
program of research that goes well beyond the specific mandate of the 
Congress. This more comprehensive research effort has been docu- 
mented in hearings before the appropriations subcommittee for 
agriculture. The enclosed report, "Costs of Producing Fed Cattle in the 
United States — Final 1977, Preliminary 1978, and Projections for 
1979," is a product of that overall effort. 

You will notice as you review the report that average U.S. cattle- 
feeding enterprises lost money in 1977, but showed a profit in 1978 and 
are expected to show a profit in 1979. The report contains detailed 
summaries of cost for the two major cattle feeding regions and na- 
tional average costs. Cost estimates are shown by major component. 
The cost estimates should prove to be of widespread interest to the 
cattle feeding and related industries and the consuming public. 
Sincerely, 

Howard W. Hjort, 
Director of Economics 
Policy Analysis and Budget 
Enclosure. 

(V) 



PREFACE 



A comprehensive program of research on cost of production is carried 
out by the National Economics Division (NED) of the Economics; 
Statistics, and Cooperatives Service (ESCS), U.S. Department of 
Agriculture (USD A) . 

Cost-of-production estimates for specified commodities were man- 
dated by the Agriculture and Consumer Protection Act of 1973. 
Although cost of producing fed beef was not included in that mandate,- 
the agency undertook a major effort to develop a comprehensive pro- 
gram to improve its data on cost of production for all major farm enter- 
prises. In 1976 fed-beef production was added to the list of enterprises 
for which cost of production estimates are maintained. Data for the 
cost-of-production estimates come from a variety of sources, but the 
primary source for fed-beef information is a 1976 survey of 308 pro- 
ducers. Many other units in ESCS and across USDA contribute data 
and information that are processed and evaluated through the firm 
enterprise data system (FEDS). Numerous people in the land-grant 
universities contribute to the effort and review cost estimates before 
they are published. 

It should be recognized as these estimates are used that there is wide 
variability in production costs. Costs vary significantly over time,- 
among feedlots, and across the States and regions. Variability among 
f eedlots is due to many factors ; the most important are differences in 
size of enterprise, type of production system, and management skills 
of individual producers. The costs shown here are averages but the 
large variation in costs among feedlots should not be overlooked. 

This report was prepared under the direction of Kerry Gee of NED's 
Animal Products Branch. ESCS staff contributing to the report in- 
clude Roy Van Arsdall, Ronald Gustafson, Gail Garst, Richard Cromj 
and Robert Otto. 

(VII) 



SUMMARY 



Production of fed cattle — steers and heifers — marketed in 1977 from 
all U.S. feedlots cost producers an average of $43.16 per hundred- 
weight sold. Receipts averaged $40.18 per hundredweight, which failed 
to cover total costs by $2.98 per hundredweight. Total costs in 1978 in- 
creased to $47.58 per hundredweight, with average receipts of $52.50 
exceeding total costs by $4.92. Costs for 1979 are projected to be $64.36 
per hundredweight, with most of the increase due to much higher 
feeder-cattle prices. Returns are projected to increase to $65.30 due to 
higher fed-cattle prices. The increase in fed-cattle prices is not expected 
to be as great as the increase in feeder-cattle price; consequently, the 
margin between costs and returns will average about 94 cents in 1979. 

Costs and returns for farmer-feeders and commercial feeders differ 
due to seasonality of feeding, intensity of feedlot use, level of total cost,- 
and the cash-noncash cost breakdown. Costs of production in 1977, for 
midwestern farm feedlots averaged $47.97 per hundredweight sold. 
Costs of production for western commercial feedlots averaged $40.70 — 
$7.27 less than the farmer-feeders. However, cash costs for farmer- 
feeders and commercial feeders were similar, averaging $39.14 and 
$40.10, respectively. Cash costs comprise nearly 99 percent of total 
costs for commercial feeders, but only about 80 percent for farmer- 
feeders, reflecting underutilization of facilities and equipment due to 
seasonal feeding and greater use of operator and family labor (which is 
a noncash cost). 

(IX) 



48-121—79- 



/ 



CONTENTS 



Page 

Foreword in 

Letter of transmittal v 

Preface vn 

Summary ix 

Introduction 1 

Size and location of cattle-feeding enterprises 3 

Sources of data and procedures 6 

Period covered 6 

Feed 7 

Livestock 7 

Labor 7 

Facilities, equipment and machinery 8 

Overhead 8 

Management 8 

Land 9 

Interest on operating costs 9 

Other operating costs 9 

Changes in cost rates and prices 9 

National highlights 10 

Regional costs and returns 11 

Total costs 16 

Direct costs 16 

Feed costs „ 16 

Feeder cattle 17 

Ownership costs 17 

Management charge 17 

Land costs 18 

Returns 18 

txii 



INTRODUCTION 



Average U.S. cattle-feeding enterprises lost money in 1977, but 
showed a profit in 1978 and are expected to show another profit, 
although smaller, in 1979. Average fed-cattle production costs were 
$43.16 per hundredweight in 1977 and $47.58 in 1978, and are pro- 
jected to be $64.36 in 1979. Prices received by producers were $40.18 
per hundredweight in 1977, $52.50 in 1978, and are projected at 
$65.30 in 1979. 

This study provides national estimates of weighted average fed-beef 
costs and returns. Data are final for 1977, preliminary for 1978, and 
projected for 1979. 

Cost of production estimates for fed beef are part of a comprehensive 
research effort by the National Economics Division of the Economics, 
Statistics, and Cooperatives Service (ESCS), U.S. Department of 
Agriculture (USD A), to develop and maintain up-to-date cost data 
for major agricultural commodities. Continual increases in farm 
input prices and fluctuations in product prices have magnified the 
need for current information on costs and returns for agricultural 
products. 

The Agriculture and Consumer Protection Act of 1973 directed 
the Secretary of Agriculture to estimate annual costs of producing 
major commodities. 1 This activity was assigned to the former Eco- 
nomic Research Service (now a part of ESCS). Although the mandate 
did not specifically include meat animals, the agency directed in 1976 
that cost-of-production research include beef cattle, hogs, and sheep, 
and allocated funds for a field survey of meat-animal producers to 
obtain needed information. Data from that study were used to es- 
timate 1976 and 1977 costs of production for fed beef and provided 
the basis for this analysis of costs and returns for 1 977-79. 2 

A supplemental cost estimating procedure known as the firm enter- 
prise data system (FEDS) was implemented in 1973. This system 
consists of a series of computerized enterprise budgets serviced by 
an aggregation program. 3 Surveys are now planned on a 5-year rota- 
tional schedule that treats different major commodity groupings 
each year. Cattle feeders in major production areas will be surveyed 
every 5 years to provide data to update and supplement the FEDS 
cost-estimating procedure. FEDS is used to update costs in the years 
between surveys. 

Fed-beef budgets were developed for two major regions which ac- 
count for over 95 percent of total U.S. fed-cattle production. These 
regions are the Midwestern Cornbelt States and the Western com- 
mercial cattle-feeding States (fig. 1). Fed-beef enterprises differ be- 
tween the two regions. The Midwest is dominated by farmer-feeder 

1 Section 808: Public Law 98-86, 93d Congress, Agriculture and Consumer Act of 1973. 

2 U.S. Fed-Beef Industry: Production Costs and Structure, Econ., Stat., and Coop. Serv. U.S. Dept; 
Agr., AER-424, June 1979. 

3 The FEDS system of budgets and cost estimating procedures is operated by ESCS research staff stationed 
at Oklahoma State University. 

(1) 



production where cattle feeding is seasonal, typically in lots with less 
than 1,000 head capacity. Fed-beef production usually is just one 
of several enterprises on the farm. Western commerical fed-beef pro- 
duction is in large specialized feedlots of over 1,000 head capacity 
where feeding is done the year round. There are substantial differences 
in costs and returns between the two regions due to variations in size 
of enterprise and production practices. 



Geographical Distribution of U.S. Fed-Beef 
Production, 1977 




Numbers in States indicate cattle on feed (1,000 head) January 1, 1977, 
in the 23 major cattle-feeding States. 



USDA 



Nag. ESCS 63-79 (4) 



FlGUBE 1 



Budgets for fed-beef enterprises include direct costs, ownership 
costs of assets that are useful for more than 1 production year, al- 
lowances for unpaid labor and management, and a charge for land tax. 
Direct costs include expenditures or allowances for feed, veterinary 
and medicine, hired labor, bedding, fuel and lubricants, electricity, 
repairs, interest on operating capital, custom services, miscellaneous 
supplies, and general farm overhead. General farm overhead includes 
an allowance for recordkeeping, telephone, general farm maintenance, 
and similar items that are not directly chargeable to a specific enter- 
prise, but are an overhead cost to the farm business. Ownership costs 
of facilities include charges for replacement, interest, insurance, and 
taxes. An allowance is made for unpaid labor and management. Taxes 
on land used for all feedlots, as well as harvested forage production on 
Midwestern farmer feedlots, are included. All costs are shown as either 
cash or noncash costs for a production year. More detail appears later 
on how these and other costs were calculated. Information also is pro- 
vided regarding the relevance of different categories of costs to pro- 
duction planning under alternative decision settings. 



SIZE AND LOCATION OF CATTLE-FEEDING 
ENTERPRISES 



Fed-beef production has been shifting towards fewer enterprises of 
larger size, but a large number of farm feedlots remain with less than 
1,000 head of capacity. Over 98 percent of the f eedlots in the major 23 
feeding States in 1977 were farmer-feeders with less than 1,000 head 
capacity (table 1). Commercial f eedlots, with less than 2 percent of 
all feedlots, provided 68 percent of 1977 fed-cattle marketings. The 
201 largest commercial feedlots, those with a capacity for 16,000 or 
more cattle, accounted for 38 percent of total marketings. Most farmer 
feedlots operate seasonally while the large commercial feedlots operate 
throughout the year unless losses force reduction in capacity utiliza- 
tion. 

TABLE 1.— CATTLE FEEDLOTS AND FED-BEEF MARKETINGS, 23 MAJOR CATTLE FEEDING STATES, 
BY SIZE OF FEEDL0T, 1977 

Feedlots Fed-beef marketings 

Feedlot capacity (head) 

Under 1,000 

1,000 to 1,999 

2,000 to 3,999 

4,000 to 7,999 

8,000 to 15,999 

16,000 to 31,999 

32,000 and over __ 

Total 131,904 100.0 24,853 100.0 

♦Less than 0.005. 

Enterprise budgets of fed-beef costs and returns are presented for 
midwestern farm feedlots (less than 1,000 head capacity) and western 
commercial feedlots (1,000 head or more capacity). Midwestern farm 
feedlots include all those that marketed fed-cattle from the nine 
Midwestern States plus the farmer feedlots with less than 1,000 head 
capacity located in Kansas, Nebraska, and South Dakota, primarily 
in the eastern half of those States (table 2) . Some commercial feedlots 
exist in the nine Midwestern States, but they represent only 0.4 
percent of the feedlots and 11.6 percent of the marketings in this 
region (table 3). 

The midwestern farm enterprises are dominated by a large number 
of small, seasonal feeders and the western commercial enterprises 
are dominated by a much smaller number of large feedlots that feed 
the year around. Western commercial feedlots in this study represent 
all commercial feedlots in the 14 Western States and the small pro- 
portion of farmer feedlot marketings in this region; excluded are 

(3) 



Number 


Percent 


Number 


Percent 


130,018 


98.6 
.6 
.3 
.2 
.2 
.1 
(*) 


7,917 
1,177 
1,186 
1,653 
3, 583 
4,846 
4,490 


31.9 


824 


4.7 


501 


4.8 


238 


6.6 


221 


14.4 


140 
61 


19.5 
18.1 



farmer feedlots in Kansas, Nebraska, and South Dakota which are 
grouped with the midwestern farm feedlots (table 2). Feedlots in 
the western commercial region with 1,000 head or more capacity- 
comprise less than one-third of the feedlots but market over 97 per- 
cent of the fed cattle (table 3). 

Growth in both the midwestern and western regions continues to be 
among the commercial feedlots, while the number of farmer feedlots 
continues to decline. Commercial feedlots in all regions expanded 
from 1,796 lots in 1976 to 1,886 and 1,902, respectively, in 1977 and 
1978 (table 3). Farmer feedlots have declined from 130,739 lots in 
1976 to 130,018 in 1977 and 125,523 in 1978. 



TABLE 2 —FEEDLOTS AND FED-BEEF MARKETINGS, 23 MAJOR CATTLE FEEDING STATES, BY SIZE OF FEEDL0T, 1977 





Feedlots wil 
1,000 heac 

Feedlots 
(number) 


:h less than 
1 capacity 

Marketings 
(1,000 head) 


Feedlots with 1,000 head 
or more capacity 


All feedlots 


State 


Feedlots 
(number) 


Marketings 
(1,000 head) 


Feedlots 
(number) 


Marketings 
(1,000 head) 


Western commercial: 

Arizona. 


3 

26 


1 
10 
143 
43 

"I 

0) 

h 

29 
28 
33 
0) 
146 
28 


38 

111 

199 

59 

159 

40 

360 

37 

12 

39 

18 

66 

156 

26 


645 
1,602 
2,148 

395 
2,913 

128 
2,260 

294 
34 

704 

139 

249 
4,081 

363 


41 
137 
475 
544 
159 
101 
360 

40 
898 
360 
500 

66 
1,200 

98 


646 
1,612 
2,291 

438 
2,913 


Colorado 

Idaho 

Kansas' . ... 


276 

485 

0) 


Montana 

Nebraska 1 

New Mexico 

North Dakota .. 


61 

0) 

3 

886 


134 

2,260 

294 

63 


Oklahoma 

Oregon 

South Dakota' 

Texas 

Washington 


321 

482 

0) 

1,044 

72 


732 
172 
249 
4,227 
391 


Total 


3,659 


467 


1,320 


15,955 


4,979 


16, 422 


Midwestern farmer-feeder: 

Illinois 


13,925 

10,480 


813 
311 

2,305 
374 
210 
693 
282 

1,525 
347 
115 . 
323 
154 


75 
20 
289 
(') 
42 
58 
41 
0) 
25 


127 
41 

557 
C) 
67 
65 
41 

0) 

56 


14, 000 

10, 500 

33, 000 

5,841 

1,550 

11,200 

8,000 

14, 000 

7,800 

6,000 

8,534 

6,500 


940 

352 


Iowa 

Kansas 1 

Michigan 

Minnesota .. 


32,711 

5,841 

1,508 

11,142 


2,862 
374 
277 
758 


Missouri . . 


7,959 


323 


Nebraska 1 

Ohio 

Pennsylvania 

South Dakota 1 


14,000 

7,775 

6,000 

8,534 


1,525 
403 
115 


(') 
15 


0) 

25 


323 


Wisconsin 


6,485 


179 


Total 


126,360 


7,452 


565 


979 


126, 925 


8,431 


23-State total 3 


130,018 


7,917 


1,886 


16, 936 


131,904 


24, 853 









1 Feedlots with less than 1,000 head of capacity in Kansas, Nebraska, and South Dakota are included in the midwestern 
farmer-feeder region, while lots with 1,000 head over capacity in these States are included in the western commercial 
region. I*.^.£jfc wL 

2 Lots and marketings from larger size groups are included to avoid disclosing individual operations.!! »•!*•«■' ~ '• 

3 The sum of numbers shown by States under a specified size group may not add to 23-State total for Jtnat size 
group, since for some States size groups are combined to avoid disclosing individual operations. 



TABLE 3— FEEDLOTS AND FED-BEEF MARKETINGS BY FEEDLOT CAPACITY AND FEEDING GROUP, 197S, 

1977, AND 1978 



Feedlot capacity- 



Region 



Less 

than 1,000 

1,000 head or 

head more 



23-State 
total 



Marketings of feedlots with 
a capacity — 



Less 

than 
1.000 
head 



1,000 
head or 23-State 
more total 



1976: 

Western commerciali 3,712 1,311 5,023 355 15,434 15,790 

Percentage of western commercial 73.9 26.1 23.8 2.3 97.7 2 65. 3 

Midwestern farmer-feeder » 127,027 485 127,512 7,570 810 8,380 

Percentage of feeders 99.6 0.4 296.2 90.3 9.7 234.7 

23-State total 130,739 1,796 132,535 7.926 16,244 24,170 

Percentage of 23-State total 98.6 1.4 100.0 32.8 67.2 100.0 

1977: 

Western commerciali 3,659 1,320 4,979 467 15,955 16,422 

Percentage of western commercial 73.5 26.5 23.8 2.8 97.2 266. 1 

Midwestern farmer-feeders 126,360 565 126,925 7,452 979 8,431 

Percentage of feeders 99.6 0.4 295.2 88.4 11.6 233.9 

23-State total 130,018 1,886 131,904 7,917 16,936 24,853 

Percentage of 23-State total 

1978: 

Western commerciali. 3,903 1,338 5,241 385 17,008 17,393 

Percentage of western commercial 74.5 25.5 24.1 2.2 97.8 -65.3 

Midwestern farmer-feeder 3 121,620 564 122,184 8,157 1,095 9,252 

Percentage of feeders 99.5 0.5 295.9 88.4 11.6 234.7 

23-State total 125,523 1,902 127,425 8,542 18,103 26,645 

Percentage of 23-State total 98.5 1.5 100.0 32.1 67.9 100.0 

1 Includes all feedlots in the 14 Western States except the feedlots in Kansas, Nebraska, and South Dakota with less than 
1,000 head of capacity. 

2 Percentage is based on 23-State total data. 

3 Includes all feedlots in the 9 Midwestern States plus those feedlots with less than 1,000 head of capacity in Kansas, 
Nebraska, and South Dakota. 



The western commercial and midwestern farm enterprises are com- 
bined into an all-region, weighted average, cost of fed-beef production, 
with marketings as a weighting factor. These weightings have changed 
little in recent years. The midwestern farm enterprise weighting factor 
was 34.7, 33.9, and 34.7 in 1976, 1977 and 1978, respectively (table 3). 
The 1978 weighting factors are used to derive the 1979 all-region pro- 
jected costs and returns. 



SOURCES OF DATA AND PROCEDURES 



Much of the data for estimating fed-beef production, costs, and re- 
turns for 1977, 1978, and 1979 are from a 1976 ESCS survey of fed- 
beef producers. Facilities, machinery, and equipment inventories and 
their use rates, labor requirements, and cash expenses other than for 
feed and cattle were all obtained from this source. Feeder cattle pur- 
chases, kinds and quantities of feed consumed, and fed-beef marketings 
are from published USDA livestock reports and from records of 
fed-beef businesses in the Midwestern and Western States. 

These costs, production input-output coefficients, and returns from 
fed-beef marketings were updated for 1977 and 1978, and projected 
for 1979 using prices and indexes reported by the Statistical Re- 
porting Service (now a part of ESCS) and projections made in the 
ESCS outlook and situation information system (OASIS). 4 All costs 
and prices reflect averages for States or regions weighted according to 
the volume of fed-beef marketings represented. Thus, economies, or 
diseconomies, of size in purchasing and marketing are not reflected for 
large (or small) volume producers. 

Combined weighted aggregates of the regional budgets are used to 
estimate the national average costs and returns of fed-cattle production 
in 1977, 1978, and 1979, using survey data and specified allocative 
procedures. Costs are presented for decision settings based on the 
economic importance of the cattle-feeding enterprise to the total farm 
business and length of planning period. The estimated total costs of 
production are further divided between costs that must be recovered 
by returns from fed-cattle marketings for continued production to be 
profitable and costs that are postponable. 

PERIOD COVERED 

The production period varies between commercial and farm-feedlot 
enterprises. In the former, purchases of inputs and marketings occur 
on a nearly continuous basis. Feeder cattle are purchased and placed 
on feed from August of the previous year through July of the current 
year to reflect the timelag between placement and marketing. The 
production year for fed-cattle marketings is defined as the calendar 
year. 

In contrast, farm feedlots commonly feed only one or two groups of 
cattle a year. Calves are typically purchased in the fall; purchases of 
yearling cattle are grouped m fall and spring. The production year is 

« The outlook and situation information system (OASIS) Is a means of reporting the latest economic 

Intelligence on the agricultural sector to public and private decisionmakers. Projections and data bases are 

: aa new Information becomes available. As an aid to meat animals cost of production data users, a 

partial OASIS updating will be made available in the Livestock and Meat Situation, Econ. Stat, and Coop. 

Berv., U.8. Dept. Agr., August and October 1979 issues. 

(6) 



identified as the year in which marketing occurs. Therefore, estimates 
of costs and returns for farm feedlots for a specified year reflect pur- 
chases of feeder cattle beginning in the fall of the previous year with 
sales ranging from spring through the remainder of the designated year. 
Some of the larger farm feedlots engage in more frequent purchases 
and sales, but the feeding of one or two lots of cattle a year is the 
dominant practice. 

FEED 

Feed consumption per animal is based on amounts reported by farm 
feedlots in 1976 and commercial feedlots in 1977. These rates are 
allowed to remain constant through 1978 and 1979. Feeds except for 
corn silage fed in farm feedlots are valued at market prices whether 
purchased or produced. Operators of farm feedlots produce most of 
the hay they feed; the hay is charged to cattle feeding at cost of pro- 
duction. Corn silage used in farm feedlots is valued according to the 
grain content at harvesttime prices plus an allowance to cover the 
additional costs of harvesting the crop for silage rather than grain. 

LIVESTOCK 

Weight and sex of feeder cattle and fed beef used in the budgets are 
those reported by commercial feedlots for 1977 and for 1976 by farm 
feedlots. The same mix of feeder and slaughter cattle is used for 1978 
and 1979 estimates. 

Prices for feeder cattle and fed beef in 1977 and 1978 are derived 
from Livestock Market News, Agricultural Marketing Service, USDA. 
Midwestern farm-feedlot cattle and calf purchases by month are 
charged at the average prices for Good and Choice grade feeder cattle 
at Kansas City. Fed cattle are valued at the average Choice grade 
slaughter prices at Omaha during the marketing month. Feeder-cattle 
and fed-beef prices for western commercial feedlots are weighted 1977 
annual averages for Choice grade animals at Omaha, Amarillo, Tex., 
and California markets. Annual average fed-cattle prices are used for 
commercial feedlots, since cattle sales are made on a nearly continuous 
basis throughout the year. Feeder-cattle prices are averages for August 
of the previous year through July of the current year. 

LABOR 

Large commercial feedlots require a highly specialized labor force. 
This force may include a yard crew to care for cattle and maintain and 
operate equipment and facilities; bookkeepers, secretaries, and ac- 
countants for office work; highly trained nutritionists and veteri- 
narians ; and the management force. The total labor input from these per- 
sonnel is based on hours reported by commercial feedlots in the 1976 
survey. Most of the activities connected with farm feedlots are per- 
formed by operator and family labor. Hired labor contributed only 
18 percent of the total labor used on farm feedlots in 1976. Labor 
inputs per animal for 1977, 1978, and 1979 are the same as 1976. 
Wage rates are updated from those reported in the 1976 survey. 



8 

FACILITIES, EQUIPMENT AND MACHINERY 

Facilities and equipment reflect those actually used for fed-beef pro- 
duction. Items associated with commercial feedlots are specialized for 
individual functions. Farm-feedlot enterprises make substantial use 
of general purpose machinery and equipment usually shared with 
other farming activities. Costs for these items per animal fed are 
usually lower for commercial feedlots than for farm feedlots because 
of more intensive use by the larger feedlots. Rate of cattle turnover 
in commercial feedlots, for example, may average from 2 to 2% times 
per year, while farm feedlots generally feed just one group of cattle, 
leaving facilities vacant for several months. 

Fixed costs (ownership costs) of using facilities, equipment, and 
machinery are computed on an annual basis. The total of these costs, 
which include replacement reserves (in lieu of depreciation), interest, 
taxes, and insurance, is the same for a feedlot regardless of the number 
of cattle fed. 

Prices for machinery and livestock equipment are lagged 4 years to 
provide a cost basis for calculating interest and taxes. Other facility 
investment is lagged according to age as reported by producers to 
determine interest and taxes. 

Costs of repairs and insurance are based on the current replacement 
cost of investment items to reflect price increases since original pur- 
chases were made. Depreciation is in the form of a replacement reserve 
based on current replacement cost under the assumption that a capital 
reserve for replacing facilities and equipment must account for price 
increases on these items. 

Fuel costs are based on machinery and equipment use rates reported 
by producers. The same is true for electricity consumption by farm 
feedlots. All utilities for commercial feedlots were reported as a single- 
expense item by producers in the 1976 survey. 

OVERHEAD 

Farm feedlots as part of multiple enterprise businesses must pay 
their share of expenses (such as telephone, organization membership 
costs, and farmstead lighting) not associated with any particular 
enterprise. The amount estimated to cover the portion of these costs 
chargeable to fed-beef production was determined in the 1976 base 
study. Commercial feedlots usually are single enterprise businesses, 
so items normally treated as overhead costs on diversified farms are 
included in other expense catogories chargeable to the feedlot. 

MANAGEMENT 

A management charge for farm-feedlot enterprises is included at a 
rate of 7 percent of total costs excluding land costs and purchases of 
feeder livestock. 

This charge is in addition to operating labor and represents a 
return to the operator as a manager comparable to normal fees charged 
by professional farm managers. Commercial feedlot managers receive 
a salary paid in cash like other labor inputs. 



LAND 

Land is a minor investment item in fed-beef production. Land 
occupied by facilities is the only investment required. Land investment 
is based on market value as estimated by feedlot operators in the 
1976 survey. Land cost is limited to taxes based on current market 
value. Returns on the land investment are reported as a residual 
return to land and risk. 

INTEREST OX OPERATING COSTS 

The interest on operating capital for 1977 is calculated using Pro- 
duction Credit Association (PC A) recorded and projected interest 
rates. The average time that each input was employed in fed-beef 
production is calculated and interest on this investment proportioned 
accordingly. Interest on investment in machinery, equipment and 
facilities is charged annually at the PCA rate. 

OTHER OPERATING COSTS 

Other costs in fed-beef production include veterinary, medicine, 
machine and truck hire, marketing, legal fees, and miscellaneous 
items such as organizational dues and magazine subscriptions. Initial 
levels for these items are from survey and producer record data. 

CHANGES IN COST RATES AND PRICES 

Major cost items in feedlot businesses are shown in table 4. Changes 
in costs for each year are expressed as a percentage change from the 
previous year. For example, 1977 wage rates were 7.6 percent above 
rates in 1976. 

The costs of farm produced inputs, such as grains and feeder live- 
stock, have fluctuated widely from year to year, sometimes going 
far above costs of the previous year, sometimes falling far below. The 
costs of processed inputs of farm origin, such as soybean meal, have 
fluctuated similarly over time. 

TABLE 4.— CHANGE IN THE COSTS OF SELECTED INPUTS USED IN FED-BEEF PRODUCTION, 1973-79 « 

Percentage change in cost from previous year 



Input items or costs 1973 1974 1975 1976 1977 1978 1979 

Farm origin: 

Corn. 61.5 54.5 -7.5 -7.8 -18.5 3.4 13.3 

Grain sorghum 57.6 43.4 -6.1 -7.0 -22.2 8.3 14.8 

Barley 59.2 54.0 -12.5 -18.5 -2.6 7.8 

Soybean meal 112.1 -26.2 -13.9 20.6 21.2 -11.9 9.4 

Hay 30.5 25.5 4.6 12.9 -1.5 -12.6 -1.2 

Feedercalves* 29.0 -32.3 -20.3 27.7 4.9 51.0 29.0 

Nonfarm origin: 

Wage rates 9.2 14.8 7.9 9.4 7.6 8.3 8.1 

Interest 16.9 20.0 17.6 13.0 15.3 16.1 22.9 

Taxes 2.1 6.2 7.8 7.2 9.6 7.6 7.0 

Buildings and fences 12.2 23.1 13.8 4.4 6.5 7.3 9.3 

Autos and trucks 5.8 11.0 18.6 11.0 10.4 6.5 8.3 

Tractor and self-propelled machinery 7.0 17.5 21.1 11.3 9.7 9.1 10.1 

Other machinery 6.9 14.4 23.9 14.2 9.3 7.9 7.8 

Farm and motor supplies 5.3 22.5 14.3 —2.4 .6 3.4 9.2 

Fuels and energy 7.4 37.1 11.3 5.6 8.0 4.2 20.4 

Agricultural chemicals 1.9 13.3 34.5 8.8 -9.8 -6.2 2.9 

i Data from Agricultural Statistics and Agricultural Prices ESCS, USDA. 
1 Choice feeder-steer calves, Kansas City. 



NATIONAL HIGHLIGHTS 



Production costs per hundredweight of fed beef marketed increased 
from $43.16 in 1977 to $47.58 in 1978 and are expected to be $64.36 
in 1979 (table 5). These increases can be attributed largely to a rapid 
rise in feeder-cattle prices. For example, 1977 Good and Choice 500- 
to-600-pound feeder-steer prices for October at Kansas City averaged 
$40.49 per hundredweight. The average price for these animals in 
October 1978 was up to $64.39, and is projected to increase 29 percent 
in 1979. Feed costs were slightly lower in 1978 than 1977 due to de- 
creases in feed grain, hay, and silage prices; increases are projected 
for 1979. All other production costs increased between 4 and 12 percent 
during the 1977-79 study period, with the magnitude depending on the 
particular item. 

Returns from fed-beef marketings are projected to rise between 
1977-79, moving producers from a loss of $2.98 per hundredweight 
marketed in 1977 to profits of $4.92 and 94 cents per hundredweight 
in 1978 and 1979, excluding interest on land. Positive returns are due 
to much improved fed-beef prices. For example, Choice 900-to-l, 100- 
pound slaughter-steer prices for the first 9 months of 1977 at Omaha 
averaged $39.70 per hundredweight. The average for this same period 
in 1978 was $51.53, or 130 percent of the previous year average. 
Expected 1979 prices are 24 percent above 1978 levels. 

TABLE 5— AVERAGE COSTS AND RETURNS, PER HUNDREDWEIGHT OF FED BEEF MARKETED, MIDWESTERN FARM 
FEEDL0TS AND WESTERN C0MMERICAL FEEDL0TS COMBINED, FINAL 1977, PRELIMINARY 1978 AND PROJECTED 
19791 

Final 1977 Preliminary 1978 Projected 1979 



Item Cash Noncash Cash Noncash Cash Noncash 

Returns: Fed beef $40.18 (2) $52.50 (2) $65.30 (2) 

Direct costs: 

Feed 

Labor 

Other production items 

Interest on operating capital 

Feeder cattle 

Total direct costs 

Manure credit 

Total direct costs less manure credit... 

Ownership costs* 

Management 

Land tax « 

Total cash and noncash costs 39.77 3.39 

Total nonland costs 43. 16 

Returns to land and risk —2.98 

1 Averages for 2 feedlot groups are weighted by total 1977 fed-beef marketings. 

2 Not applicable. 

• Interest and taxes, based on original investment values, plus insurance and replacement reserves, based on current 
investment values. 
« Interest on investment in land occupied by feedlot facilities would add $0.30 per hundredweight to costs. 

(10) 



14.56 


$0.23 
.71 
.16 
.01 
( 2 ) 


14.42 

.51 

3.54 

.88 

24.81 


$0.27 
.78 
.18 
.01 
( 2 ) 


15.91 

.55 

3.90 

1.49 

38.70 


$0.28 


.47 


.84 


3.34 

.77 

20. 88 


.19 
.01 
< 2 ) 


40. 02 
-.47 


1.11 
( 2 ) 


44.16 
-.47 


1.24 


60.55 

-.49 


1.32 


39. 55 
.11 


1.11 
1.63 
.65 


43.69 
.12 
.08 
.03 


1.24 

1.74 

.68 

( 2 ) 


60.06 
.14 
.09 
.03 


1.32 
1.95 


.08 


.77 


.03 


< 2 > 



1. 92 3. 66 


60.32 


4.04 


47.58 


64.36 




4.92 


.94 





REGIONAL COSTS AND RETURNS 



Enterprise budgets for midwestern farm feedlots and western com- 
mercial feedlots identify important differences in total 1977-79 costs 
and returns and in the relative importance of various inputs for the 
two types of businesses. 

Each fed-beef budget shows the average total cost per hundred- 
weight marketed for all input items, including an allowance for man- 
agement and general farm overhead expenses. The individual input 
items are identified, measured in physical terms where appropriate, and 
priced. Costs for individual inputs are finally separated according to 
whether they represent cash or noncash outlays during the business 
year. 

Most decisions related to fed-beef production are made by individ- 
uals already in business. Operating decisions, particularly in farm-feed- 
lot businesses, are based on only part of total cost — that part on which 
the decisionmaker can have some effect. Many costs are beyond the 
decisionmaker's control. For example, to the extent that usable build- 
ings and equipment exist, the ownership costs associated with them are 
irrelevant to an operational decision. These costs cannot be eliminated 
and they will not be affected by the level of fed-beef production. They 
are zero for planning purposes in any one year. 

The detailing of costs allows any item to be excluded for shortrun 
decisionmaking purposes. For example, it is to the producer's ad- 
vantage to continue production until replacement of depreciable assets 
is required if enough can be earned to cover operating expenses and 
then pay something toward ownership costs. Otherwise, such assets 
earn nothing. Continued production contributes positively to farm in- 
come in any given year even if only a small part of noncash costs are 
covered. 

Costs for commercial feedlots are divided between cash and noncash 
costs (table 6). Cash costs are about 99 percent of total costs. Farm- 
feedlot budget summaries are constructed on the basis of three situa- 
tions: (1) where cattle feeding is a minor enterprise in the total farm 
business and only direct cash costs must be covered for the enterprise 
to contribute positively to farm income (supplementary enterprise, 
short run), (2) where cattle feeding is a major farm enterprise and must 
cover family labor and management costs as well as all cash costs 
during a production year (primary enterprise, short run), and (3) 
where cattle feeding is a major farm enterprise and all costs must 
be covered for the enterprise to continue to exist for many years 
(primary enterprise, long run) (tables 7, 8, and 9). The first budget 
setting represents the situation for many small fed-beef businesses. 

(11) 



12 

TABLE 6— AVERAGE COST PER HUNDREDWEIGHT OF FED BEEF MARKETED, WESTERN COMMERCIAL FEEDLOTS, 
FINAL 1977, PRELIMINARY 1978, AND PROJECTED 1979 1 



Final 1977 



Preliminary 1978 Projected 1979 



Item 2 



Cash Noncash Cash Noncash Cash 



Noncash 



.75 
.27 
.12 
.46 
.18 
.23 
.18 
.21 



P) 



p) 
o 
p) 
P) 
P) 
P) 
p) 
p) 



10.58 

3.57 

1.08 

.33 

.22 



15.78 



.79 
.30 
.12 
.55 
.19 
.24 
.22 
.23 



Returns: Fed beef (100 lb) $40.06 p) $52.08 (3) $65.00 

Direct costs: 

Grain (2421b) 8.99 p) 9.34 

Other concentrate (42 lb) 3.56 (3) 3.26 

Legume hay (38 lb) 1.26 (3) 1.24 

Corn silage (40 lb) 39 (3) .32 

Other roughage (8 lb) 20 (3) .22 

Subtotal, feed 14.40 (3) 14.38 

Veterinary and medicine .73 (3) 

Truck and machine hire .26 (3) 

Marketing 11 (3) 

Utilities 44 p) 

Legal fees 17 p) 

Miscellaneous expense .21 p) 

Fuel and lubricants .17 p) 

Machinery and building repairs .20 P) 

Subtotal, other production costs 

Feeder cattle (60.6 lb) 22 

Hired labor (0.12 hr) 

Interest on operating capital 

Total direct costs 

Manure credit 4 

Total direct costs less manure credit.. 

Ownership costs: 

Machinery and equipment (RITI)5 

Building and facilities (RITI)» 

Total ownership costs 

Management (0.02 hr) 

Land taxes 

Total cash and noncash costs 40. 10 

Total nonland costs 40.70 

Return to land and risk —.64 



P> 



P) 



P) 
M 

(-') 
P) 
P) 
P) 
P) 
P) 



2.29 


(?) 
P) 
P) 
P) 


2.40 

26.49 

.52 

.79 


(?) 

P) 
P) 
P) 


2.64 

41.32 

.56 

1.29 


P) 


22.16 


P) 


.48 


P) 


.67 


P) 






40. 00 


P) 
P) 


44.58 
-.08 


P) 
P) 


61.59 
-.08 


P) 


-.08 


P) 






39.92 


P) 


44.50 


P) 


61.51 


P> 


.03 


0.39 
.21 


.03 
.02 


$0.43 
.23 


.04 
.02 


$0.49 


.02 


.25 






.05 


.60 
P) 
P) 


.05 
.13 
.01 


.66 
P) 
P) 


.06 
.14 
.01 


.74 


.12 


P) 


.01 


P) 







3 


.66 


61.72 


.74 


45.35 




62.46 




6.73 




2.54 





i Prices are averages paid or received by producers. 

» Physical quantities where applicable are shown in parentheses. 

3 Not applicable. 

* The value of manure sold by feedlot businesses. In many cases, more is produced than marketed but left to decompose 
after removal from the feedlot. 

* Replacement reserve (R) and interest (I) are noncash costs, while taxes (T) and insurance (I) are cash costs. 



13 

TABLE 7.— AVERAGE COSTS AND RETURNS PER HUNDREDWEIGHT OF FED BEEF MARKETED, MIDWESTERN FARM 

FEEDLOTS, FINAL 1977 « 



Item* 



Supplementary 
enterprise, 
short run^ 

Cash Noncash 



Primary 
enterprise, 
short run 3 



Cash Noncash 



Primary 
enterprise, 
long run 3 



Cash Noncash 



Returns: Fed beef (100 lb) 

Direct costs: 

Corn (2.7 cwt) 

Protein supplement (0.25 cwt). 

Legume hay (0.03 ton) 

Corn silage (0.13 ton) 



Subtotal, feed 

Veterinary and medicine 

Truck and machine hire 

Marketing 

Bedding (0.44 ton) 

Fuel, lubricants and electricity.. 
Machinery and building repairs. 



Subtotal, other production costs. 

Feeder cattle (51.2 lb) 

General farm overhead.. 

Interest on operating capital s 

Hired labor (0.15 hr) 



Total direct costs. 
Manure credit 6 



Total direct costs less manure credit- 



Ownership costs: 

Machinery and equipment (RITI)?. 
Buildings and facilities (RITI)? 



Total ownership costs. 

Operator and family labor (0.69 hr). 

Management , 

Land taxes 



Total cash and noncash costs. 

Total nonland costs 

Return to land and risk 



CO 

$9.64 

3.13 

.26 

1.84 



14.87 



.42 
1.11 
.40 
.24 
.74 
1.28 



4.19 
18.40 



.96 

.44 



37.64 



CO 

$9.64 

3.13 

.26 

1.84 



CO 



14.87 



CO 



.42 
1.11 
.40 
.24 
.74 
1.28 



4.19 

18.40 

1.20 

.96 

.44 



$40.41 

9.64 

3.13 

.26 

1.84 



14.87 



.42 
1.11 
.40 
.24 

.74 
1.28 



4.19 

18.40 

1.20 

.96 

.44 



37.64 



CO 



39.14 3.99 

43.13 



39.14 



CO 

(O 
CO 

$0.41 
.28 



47.97 
■7.56 



69 



(0 

CO 

CO 

.48 
CO 
CO 



CO 
CO 

.03 

CO 



38. 86 
. -1.22 


CO 
CO 


40.06 
-1.22 


CO 
CO 


40.06 
-1.22 


1.20 
CO 


37. 64 


CO 


38.84 


CO 


38.84 


1.20 


CO 
CO 


CO 
CO 


.15 

.09 


CO 
CO 


.15 
.09 


2.39 
1.25 


CO 
CO 
CO 

CO 


CO 
CO 
CO 
CO 


.24 
CO 
CO 

.06 


CO 

$2.06 

1.93 

CO 


.24 
CO 
CO 

.06 


3.64 
2.06 
1.93 

CO 



S3 



1 Prices are averages paid or received by producers. See text for more complete explanation. 

2 Physical quantities where applicable are shown in parentheses. 

8 See text for an explanation of length of planning period. Cash costs are the actual cash outlays for production items, 
the market value of readily salable items such as grain, plus taxes and insurance. Interest on direct expenses is apportioned 
between cash and noncash; interest on all durable assets is listed as an opportunity cost as if the producer had full equity. 

4 Not applicable. 

« Interest is charged on the cost Cor assigned value) of all direct inputs and arbitrarily divided between cash and noncash 
in proportion to their shares of total direct costs. 

• The value of manure as a fertilizer is credited to the feedlot enterprise even though a cash transaction does not occur, 
since it is usually applied to cropland operated by the producer. 

'Replacement, interest, taxes and insurance. 



14 



TABLE 8. 



-AVERAGE COSTS AND RETURNS PER HUNDREDWEIGHT OF FED BEEF MARKETED, MIDWESTERN FARM 
FEEDLOTS, PRELIMINARY 1978 « 



Item 2 



Supplementary 


Primary 




Primary 




enter 


prise, 




enterprise, 




enterprise, 




short 


run* 




short 


run 3 




long run 3 




Cash 


Noncash 


Cash 


Noncash 


Cash Noncash 


(<) 




(<) 


(0 




(0 


$53.30 


0) 


$9.97 




0) 


$9.97 




(<) 


9.97 


0) 


2.76 




(*) 


2.76 




(<) 


2.76 


(*) 


.28 




0) 


.28 




(<) 


.28 


$0.44 


1.50 




(<) 


1.50 




0) 


1.50 


.34 


14.51 




(<) 


14.51 




(<) 


14.51 


.78 


.43 




0) 


.43 




0) 


.43 


0) 


1.16 




0) 


1.16 




0) 


1.16 


0) 


.43 




(<> 


.43 




0) 


.43 


(<) 


.26 




(<> 


.26 




(<) 


.26 


.52 


.77 




(<) 


.77 




0) 


.77 


(<) 


1.37 




(0 


1.37 




(<) 


1.37 


(0 


4.42 




0) 


4.42 




0) 


4.42 


.52 


21.64 




0) 


21.64 




0) 


21.64 


(«) 


0) 




0) 


1.28 




0) 


1.28 


(«) 


1.05 




0) 


1.05 




0) 


1.05 


.03 


.48 




(*) 


.48 




0) 


.48 


0) 



Returns: Fed beet (100 lb) 

Direct costs: 

Corn (2.7 cwt) 

Protein supplement (0.25 cwt) 

Legume hay (0.03 ton) 

Corn silage (0.13 ton) 

Subtotal, feed 

Veterinary and medicine 

Truck and machine hire 

Marketing 

Bedding (0.44 ton) 

Fuel, lubricants and electricity 

Machinery and building repairs 

Subtotal, other production costs. 

Feeder cattle (51.2 lb). 

General farm overhead 

Interest on operating capitals 

Hired labor (0.15 hr) 

Total direct costs 

Manure credit 8 

Total direct costs less manure credit- 
Ownership costs: 

Machinery and equipment (RITI) 7 

Buildings and facilities (RITI)? 

Total ownership costs 

Operator and family labor (0.69 hr) 

Management 

Land taxes 

Total cash and noncash costs 

Total nonland costs 

Return to land and risk 



42. 10 
. -1.21 


0) 
0) 


43.38 
-1.21 


0) 
0) 


43.38 
-1.21 


1.33 
0) 


40. 89 


0) 


42.17 


0) 


42.17 


1.33 


( 4 ) 


0) 
0) 


.15 
.10 


(<) 

0) 


.15 
.10 


2.42 


(4) 


1.36 






(«) 


(<) 
0) 
0) 
(<) 


.25 
0) 
(<) 

.06 


(0 

$2.23 

1.97 

0) 


.25 
(<) 

8 


3.78 


(«) 
0) 


2.23 
1.97 


(0 


(«) 



40.89 



(0 



42.48 4.20 

46.68 



42.48 9.31 

51.79 

1.51 



1 Prices are averages paid or received by producers. See text for more complete explanation. 

2 Physical quantities where applicable are shown in parentheses. 

* See text for an explanation of length of planning period. Cash costs are the actual cash outlays for production items, the 
market value of readily salable items such as grain, plus taxes and insurance. Interest on direct expenses is apportioned 
between cash and noncash ; interest on all durable assets is listed as an opportunity cost as if the producer had full equity. 

* Not applicable. 

« Interest is charged on the cost (or assigned value) of all direct inputs and arbitrarily divided between cash and noncash 
in proportion to their shares of total direct costs. 

» The value of manure as a fertilizer is credited to the feedlot enterprise even though a cash transaction does not occur, 
since it is usually applied to cropland operated by the producer. 

7 Replacement, interest, taxes and insurance. 



15 

TABLE 9.— AVERAGE COSTS AND RETURNS PER HUNDREDWEIGHT OF FED BEEF MARKETED, MIDWESTERN FARM 

FEEDLOTS, PROJECTED 1979 i 



Item* 



Supplementary 
enterprise, 
short run* 

Cash Noncash 



Primary 
enterprise, 
short runs 



Cash Noncash 



Primary 
enterprise, 
long runs 



Cash Noncash 



Returns: Fed beef (100 lb) (<) (<) («) («) $65.87 («) 

Direct costs: 

Corn(2.7cwt) $11.30 <«) $11.30 (*) 11.30 (*) 

Protein supplement (0.25 cwt) 3.02 («) 3.02 (*) 3.02 (0 

Legume hay (0.03 ton) 30 (*) .30 (*) .30 $0.47 

Cornsilage(0.13ton) 1.55 («) 1.55 («) 1.55 .35 

Subtotal, feed 16.17 («) 16.17 («) 16.17 .82 

Veterinary and medicine .46 ( 4 ) .46 ( 4 ) .46 ( 4 ) 

Truckandmachinehire 1.31 («) 1.31 (<) 1.31 («) 

Marketing 46 («) .46 (<) .46 (*) 

Beddmg(0.44ton) 28 (*) .28 (<) .28 .56 

Fuel, lubricants and electricity 93 (*) .93 («) .93 (*) 

Machinery and building repairs 1.47 («) 1.47 (*) 1.47 (*) 

Subtotal, other production costs 4.91 («) 4.91 (*) 4.91 .56 

Feeder cattle (51.2 lb) 33.76 («) 33.76 (<) 33.76 (<) 

General farm overhead («) (*) 1.36 (*) 1.36 (*) 

Interest on operating capital* 1.86 («) 1.86 («) 1.86 .04 

Hired labor (0.15 hr) 51 («) .51 («) .51 (<) 

Total direct costs 

Manure credit 6 

Total direct costs less manure credit 

Ownership costs: 

Machinery and equipment (RITI) ? 

Buildings and facilities (RITI) i 

Total ownership costs 

Operator and family labor (0.69 hr) 

Management 

Land taxes 

Total cash and noncash costs 55.97 O) 57.69 4.64 57.69 10.27 

Total nonland costs _ 55.97 62.33 67.96 

Return to land and risk -2.09 



57.22 


(*) 


58.58 
-1.25 


( 4 ) 
( 4 ) 


58.58 
-1.25 


1.42 


. -1.25 


( 4 ) 






55. 97 


( 4 ) 


57.33 


( 4 ) 


57.33 


1.42 






0) 


( 4 ) 
( 4 ) 


.19 
.11 


( 4 ) 
( 4 ) 


.19 
.11 


2.74 


( 4 ) 


1.47 






( 4 ) 


( 4 ) 
( 4 ) 
( 4 ) 
( 4 ) 


.30 
( 4 ) 
( 4 ) 

.06 


( 4 ) 

$2.41 

2.23 

( 4 ) 


.30 
( 4 ) 
( 4 ) 

.06 


4.21 


( 4 ) 


2.41 


( 4 ) 


2.23 


( 4 ) 


( 4 ) 







i Prices are averages paid or received by producers. See text for more complete explanation. 

s Physical quantities where applicable are shown in parentheses. 

3 See text for an explanation of length of planning period. Cash costs are the actual cash outlays for production items, 
the market value of readily salable items such as grain, plus taxes and insurance. Interest on direct expenses is appor- 
tioned between cash and noncash; interest on all durable assets is listed as an opportunity cost as if the producer had 
full equity. 

* Notapplicable. 

5 Interest is charged on the cost (or assigned value) of all direct inputs and arbitrarily divided between cash and noncash 
in proportion totheirshares of total direct costs. 

1 The value of manure as a fertilizer is credited to the feedlot enterprise even though a cash transaction does not occur, 
since it is usually applied to cropland operated by the producer. 

7 Replacement, interest, taxes and insurance. 



16 

The value of operator and family labor and management, both 
noncash inputs, must generally be recovered in addition to cash 
expenses when fed-beef production from farm feedlots accounts for a 
major part of total farm income. Payment for these inputs provides 
income for family living expenses. This situation is illustrated as a 
primary enterprise for short-run operation (1 year). 

Many farm feedlot enterprises are supplementary to the total farm 
business. They account for a relatively small part of gross farm income. 
Several costs charged in these enterprise cost accounts would change 
little, if any, even if the enterprise were dropped. Further, operator 
and family labor rely on other enterprises for most of their income. 

Fed-beef production as a supplementary enterprise might benefit a 
farm business even with returns below the breakeven level. Repairs of 
machinery and buildings are counted as cash outlays in this analysis, 
but many farmers do some of their own repair work, especially with 
buildings. Some operate without borrowed funds, so part or all of the 
interest charged on operating capital may be an opportunity cost 
rather than the cash cost shown. Hired labor is a cash cost, but small 
fed-beef enterprises may use employee time that would still have to be 
paid for, but remain unproductive in the absence of this enterprise. 

TOTAL COSTS 

Total cost per hundredweight marketed also is the breakeven price 
which producers must receive to pay all cost of production. Total 
costs for commercial feedlots for 1977-79 average $40.70, $45.35, and 
$62.46 for the respective years, an increase of 53 percent over the 
period. Costs for farm feedlots average $47.97, $51.79, and $67.96 for 
the same years, an increase of 42 percent. 

Inflation in the prices for most inputs, particularly feeder cattle, 
affects total costs for both types of feedlots. Higher ownership costs of 
facilities generally keep total costs on farm feedlots well above costs in 
commercial feedlots. Differences in the timing of purchases of feeder 
cattle also result in different rates of change from year to year in costs 
for the two types of feedlots. 

DIRECT COSTS 

Direct costs include feed, veterinary and medical items, trucking and 
machine hire, marketing, bedding for farm feedlots, power costs, 
repairs, feeder-cattle purchases, farm overhead, interest on operating 
capital, and hired labor. 

Direct costs accounted for 98 percent and 83 percent of total costs, 
excluding manure credit, for commercial feedlots and farm feedlots, 
respectively, in 1977. Respective costs per hundredweight marketed 
for the two feedlot groups dining 1977-79 ranged from $40 to $61.59 
and $41.26 to $60, with differences in feeder-cattle costs as the main 
item causing direct-cost increases. 

FEED COSTS 

Total feed costs for all feedlots dropped slightly between 1977 and 
1978 — about 2 percent for Farm feedlots and Less than 1 percent for 
commercial feedlots. This was caused by a general drop in feed prices. 



17 

Projected 1979 feed costs for commercial feedlots are 10 percent 
higher than 1978 despite expected lower hay prices which fail to offset 
increases in other feed prices. Feed costs for farm feedlots are expected 
to be about 11 percent higher in 1979 than in 1978 due to increased 
cost of production for homegrown feeds and increased prices for 
purchased feeds. 

FEEDER CATTLE 

Costs of feeder cattle rose 86 percent during 1977-79 for commercial 
feedlots and 83 percent for the farm feedlots. The greater increase for 
commercial feedlots is due to differences in time of feeder-cattle pur- 
chase between the two feedlot groups. Commercial feedlots purchase 
feeder cattle on a nearty continuous basis between August of the pre- 
vious year and July of the current year for each calendar year's fed- 
cattle marketings. Therefore, average feeder-cattle prices paid are 
about the same as the lagged 12-month average. Farm feedlots pur- 
chase a substantial portion of their feeder cattle in the fall preceding 
the production year. Many of the cattle marketed in 1977 were 
purchased in the latter months of 1976, with additional purchases 
extending only through May of 1977. The same purchase pattern holds 
for the 1978 and 1979 production years. Feeder-cattle price increases 
were comparable for farm feedlots and commercial feedlots between 
1977 and 1978, although commercial feeder-cattle prices were higher, 
reflecting more of the yearly increase in prices. 

OWNERSHIP COSTS 

Ownership costs include replacement reserve (in lieu of depreciation) 
interest, taxes, and insurance on buildings, machinery, and equipment. 
The replacement reserve and interest are identified as noncash costs 
which implies full owner equity. Interest payments would require cash 
outlays to the extent that producers have outstanding debts. They 
are treated as a noncash cost because data on owner equity are lacking. 

Ownership costs in 1977 averaged 65 cents and $3.88 per hundred- 
weight marketed for commercial and farm feedlots, respectively. Much 
higher capital investment per head of capacity and a lower use rate 
explain the larger ownership costs for farm feedlots. 

Ownership costs increased substantially in 1978 and are expected 
to do so again in 1979. The combined effect of rising investment costs 
and interest rates pushed costs for commercial feedlots up 9 percent 
in 1978 and a projected 13 percent in 1979. The increases for farm 
feedlots are 10 percent and 12 percent in the 2 years. 

MANAGEMENT CHARGE 

Management is priced at 7 percent of total costs less the value of 
purchased livestock and cost of land use for farm feedlots. Actual 
costs of hired management are used for commercial feedlots. The 1977 
management charge per hundredweight of fed beef marketed averaged 
12 cents and $1.93 for commercial and farm feedlots, respectively. 
Management costs in 1978 and 1979 vary with other costs. Extremely 
low management costs for large feedlots is indicative of economies 
associated with large businesses. Typically, management costs for farm 



18 

feedlots do not involve a cash transaction. Therefore, they are treated 
as a noncash item in budgeting. Commercial feedlots hire fulltime 
salaried managers, requiring a cash expenditure for these businesses. 

LAND COSTS 

Land requirements for fed-beef production are limited to the area 
occupied by facilities. Real estate taxes on this land are charged as a 
cash cost, but amount to only a few cents per hundredweight marketed. 
Interest on investment in land is left as a residual, but also is very 
small. 

RETURNS 

Total fed-beef production costs exceeded returns in 1977 for all 
feedlot businesses. However, losses were lower than in the previous 
3 years when many feedlots were left empty and others operated at 
sharply reduced capacity. Rapid increases in production costs ac- 
companied by low fed-beef prices left the cattle-feeding industry in a 
financial crisis during 1974-76. It was not until 1977 that feedlots 
began a noticeable financial recovery. A return above total costs was 
finally realized in 1978 by both commercial and farm feedlots. Positive 
returns to commercial feedlots are projected for 1979. Losses are 
projected for farm feedlots, due primarily to feeder-cattle purchases 
in the fall of 1978 at unusually high prices. 

Although midwestern farmer-feeders are not expected to cover 
total nonland costs in 1979, all cash costs will be covered. Returns in 
1979 will exceed cash costs plus noncash costs to operator, family 
labor, and management by $3.54 per hundredweight of fed cattle 
sold. Both midwestern farmer-feeders and western commercial feeders 
are expected to respond to the higher prices. The primary limitation 
to expanded marketings is the cyclical reduction in feeder cattle 
available to enter the feedlots and, consequently, the sharply higher 
feeder-cattle prices which have reduced the projected returns to land 
and risk from 1978 levels. 

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UNIVERSITY OF FLORIDA 

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